Standard I(C): Misrepresentation

Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

Guidance

A misrepresentation is any untrue statement or omission of a fact or any statement that is otherwise false or misleading. Standard I(C) prohibits guaranteeing a specific return on volatile investments. Further, members must not misrepresent any aspect of their practice, such as their qualifications; services provided; their performance record; or the characteristics of an investment. When relying on third-party managers or rating services, they must not represent that performance as their own.

When reporting performance, members should ensure that they are being compared to an appropriate benchmark. When illiquid securities have multiple quotes from different sources they should have a consistent policy for choosing which quote to report.

When using social media, members should share only information that would be acceptably shared under other formats.

Plagiarism is another form of misrepresentation. Any sources used in the research process should be appropriately cited. An exception to this rule is work conducted by others within the same firm. The work done is the property of the employer.

Compliance

Firms can provide a written list of the firm’s available services and a description of the firm’s qualifications for employees who make presentations to clients or potential clients. This list should suggest ways of describing the firm’s services, qualifications, and compensation that are both accurate and suitable for presentations. Members can produce a similar outline of their own qualifications.

Information from third-party providers should be verified.

Websites should be monitored to ensure information on them is up-to-date.

To prevent plagiarism, members should:

• maintain copies of all sources used in the research process
• properly attribute any direct quotations, charts or other methodologies obtained from other sources
• properly attribute any material summarized from outside sources

Application

The CFA Institute Standards of Practice Handbook provides a number of examples of potential violations of Standard I(C).

In one example, an analyst who is paid by the issuer to write a research report does not disclose the contractual relationship with the issuer. This is a clear violation.

Errors that are not knowingly committed do not constitute a violation provided they are corrected and clients are properly notified of the original error and the correction.

Citing derivative products based on government issued bonds as “guaranteed by the government” would be a misrepresentation.

Copying a glossary of common terms without attributing it to the original source would be plagiarism even though the terms are in common use. Best practice would be to define them in your own words.

Information obtained through a secondary source should be attributed back to the original source. For example, a study that one learns about from a newspaper story should be attributed back to the original study, not to the newspaper.

Selecting accounts to include in a composite without a well-defined process could amount to “cherry-picking” results, which would be a misrepresentation.

Providing out-of-date information is misrepresentation.